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The purpose of this paper is to investigate the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.

The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm's exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period.

The findings show that a higher percentage of UK non‐financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms …